At what point in evolution was a circulatory system and heart developed?

First, I have to address some very important misconceptions you seem to
have about evolution and biology.

You state: If you view evolution as progressive from the simplest
organisms to more complex. . . This statement reflects one of the most
fundamental errors in understanding life. The study of evolution is not
the study of progress. Evolution is the study of change – that’s it. Not
better, not worse, just different. There are plenty of evolutionary
examples where lineages evolved from “complex” to “simpler” forms of life.

There is no progression toward complexity here. People like to think of
humanity as the pinnacle of evolution – we’re not. Humans are merely one
more twig on a very bushy tree of life. The only trend that can
meaningfully be ascribed to the evolution of life on Earth is that of
increasing diversity. There are certainly more “types” of creatures alive
today then there were to begin with. And, having just written that, I can
think of several examples were an evolutionary process resulted in the
loss of diversity.

You say you don’t know whether to be looking in biology or evolution.”
Well, here’s your problem. They are the same thing! As Dobzhansky once
said: “Nothing in biology makes sense except in light of evolution.”
Biology without evolution is merely a descriptive exercise and would
barely qualify as a science.

Now, to your main question. Circulatory systems are a requirement of body
size. The smallest creatures can obtain nourishment and eliminate waste
through simple osmosis. As body size increases, some type of circulation
is needed to aid in osmosis. Smaller creatures can achieve this result by
living in a current (a stream of water) or by creating a current through
fanning, or some other process. As the body gets even large, water becomes
a less effective means of transport, and so a substance like blood and a
means to pump it (a heart) becomes necessary. Since we are talking about
very small creatures here, and the soft parts of those creatures, it is
very unlikely that direct evidence of a heart and circulatory system would
ever be found in the fossil record. Instead, you need to look to
comparative physiology to determine the conditions that make a heart and
circulatory system necessary.

Moderator's "Note added in Proof"
The circulatory systems of most arthropods and many worms are open: they
consist of a single, open-ended, muscular tube that slowly pumps the
interstitial (between cells) fluid, called hemolymph in insects, around
the body. Genetic studies have demonstrated that the genes responsible
for the initial formation of the human heart tube are also responsible for
forming this simple arthropod "heart", suggesting that the common ancestor
of arthropods and vertebrates also had this linear heart and open circulation.